Gasoline ends with a 9% gain for the week

Crude, natural-gas futures also make a weekly climb

SAN FRANCISCO (CBS.MW) -- Gasoline futures eased Friday, but ended the week 9 percent higher than they started it.

Much of that gain is attributable to Thursday's rally that saw the fuel's biggest one-day jump in at least five years. See full story.

Unleaded gasoline for September delivery fell 0.68 cent to close at $1.0925 a gallon on the New York Mercantile Exchange Friday, well ahead of its week ago closing at 99.94 cents.

The October crude contract fell 4 cents to close at $31.84 a barrel, but it's still up from the week-ago close of $30.99. September heating oil closed at 83 cents a gallon, down 0.3 cent.

Tim Evans, a senior analyst at IFR Pegasus, said there is some real gasoline supply tightness in certain regions of the country, but overall stocks are only 8.2 million barrels under their five-year average and "the market is within four weeks of when inventories most often bottom."

The Energy Department and The American Petroleum Institute have both reported that gasoline stocks fell last week, continuing a trend that started in July. See full story.

On Thursday, gasoline futures rose above $1.12 a gallon, a level not seen since before the war in Iraq. It was the biggest one-day price climb since 1998 and the largest one-day, non-contract expiration rally in 19 years, according to Alaron Trading senior analyst Phil Flynn.

"The lack of flexibility in our nation's oil supply and the realization there isn't a quick fix out there to be found," fueled the rally, Flynn said.

At the retail level, average national gasoline prices were up 5.6 cents last week, with the price at $1.627 per gallon on Aug. 18 -- 23.5 cents above the average price two days earlier, according to a recent report from the API.

Prices set to move higher

Despite the latest setback, gasoline and crude prices are poised to move higher, said Todd Hultman, president of Dailyfutures.com, a commodity information provider.

"Europe's heat wave has driven up prices over there, low crude and unleaded inventories in the U.S. show no sign of going away anytime soon, and the U.S. economy is picking up steam," he said.

Hultman pointed out that over the past five years, the month of August usually shows an average fall of 10 million barrels in gasoline supplies. The stocks were down 8 million barrels in the first half of this month alone.

Crude, as well, has averaged a drop of roughly 12 million barrels in the month of September, he said.

"This year, the market would be devastated if inventories were to drop that much," Hultman said.

"The entire fuel market is extremely fragile and upward price spikes seem inevitable in the next two months," he said.

Supply woes

And it's been difficult for oil traders to forget about the potential for further supply constraints related to OPEC members Venezuela and Nigeria.

Venezuela suffered from another wave of protesters this week, sending "fears that another [labor] strike was eminent," said John Person, head financial analyst at Infinity Brokerage Services. Venezuelan oil workers staged a more than two-month strike early this year that succeeded in putting a halt to most of its usual 3 million-barrel-per-day output.

"That is what most blame our current deficit in inventories on -- the strike that occurred earlier this year," said Person.

Nigeria also suffers from output restraints because ethnic violence in the region has deterred oil operations.

News that China was building its inventories and increasing purchases also raised concerns that the U.S. would be competing for already tight supplies, he said.

And "the fact that Iraq is nowhere near being able or ready to begin pumping oil to levels seen before the [U.S.-led strike] has end users stressed that supplies will remain tight," he said.

Person noted that with demand expected to spike for the Labor Day weekend at the start of September, the market could see a large draw in inventories.

"The good news in all this is we are expecting a stall in demand going toward fall," he said.

But whether or not the anticipated decline in demand will be enough to offset a decline in inventories depends on production from Iraq and Venezuela, he said.

Natural gas also up 9% on week

Natural-gas futures made modest moves Friday, but ended with a 9 percent gain for the week after climbing to a one-month high on Thursday.

September natural gas rose by 0.5 cent to close at $5.28 per million British thermal units. A week ago, it closed at $4.848.

Early Thursday, the Energy Department reported a 78 billion cubic foot climb in U.S. natural-gas stocks for the week ended Aug. 15. The rise was within most market expectations.

Total inventories stand at 2.266 trillion cubic feet -- 391 billion less than last year at this time and 182 billion cubic feet below the five-year average, the government said.

"This market has a lot to worry about," said Alaron's Flynn, pointing out the "excessive heat across the land" as well as tightness in supply even though the summer has seen mostly moderate temperatures so far.

"We also have to get supplies beefed up to get ready for the approaching winter," he said. And there's a storm in the Caribbean, that could turn into Tropical Storm Fabian and potentially affect oil and gas production in the Gulf of Mexico, he said.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.